Asymptotics of bond yields and volatilities for extended CIR models under the real-world measure

K. Fergusson*

*Corresponding author for this work

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Abstract

The Cox–Ingersoll–Ross CIR short rate model is a mean-reverting model of the short rate which, for suitably chosen parameters, permits closed-form valuation formulae of zero-coupon bonds and options on zero-coupon bonds. This article supplies proofs of the formulae for the expected present value of payoffs under the real-world probability measure, known as actuarial valuation. Importantly, we give formulae for asymptotic levels of bond yields and volatilities for extended CIR models when suitable conditions are imposed on the model parameters.

Original languageEnglish
Pages (from-to)867-902
Number of pages36
JournalScandinavian Actuarial Journal
Volume2019
Issue number10
DOIs
Publication statusPublished - 26 Nov 2019
Externally publishedYes

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